Correlation Between Magnolia Oil and California Resources

Can any of the company-specific risk be diversified away by investing in both Magnolia Oil and California Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Magnolia Oil and California Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Magnolia Oil Gas and California Resources Corp, you can compare the effects of market volatilities on Magnolia Oil and California Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Magnolia Oil with a short position of California Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magnolia Oil and California Resources.

Diversification Opportunities for Magnolia Oil and California Resources

0.81

Correlation Coefficient

Magnolia Oil  California Resources

Very poor diversification

The 3 months correlation between Magnolia and California is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and Magnolia Oil is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Magnolia Oil Gas are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Magnolia Oil i.e., Magnolia Oil and California Resources go up and down completely randomly.

Pair Corralation between Magnolia Oil and California Resources

Considering the 90-day investment horizon Magnolia Oil is expected to generate 1.19 times less return on investment than California Resources. But when comparing it to its historical volatility, Magnolia Oil Gas is 1.06 times less risky than California Resources. It trades about 0.12 of its potential returns per unit of risk. California Resources Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,892  in California Resources Corp on September 4, 2024 and sell it today you would earn a total of  843.00  from holding California Resources Corp or generate 17.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Magnolia Oil Gas  vs.  California Resources Corp

Magnolia Oil Gas

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magnolia Oil Gas are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Magnolia Oil showed solid returns over the last few months and may actually be approaching a breakup point.

California Resources Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, California Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magnolia Oil and California Resources

The main advantage of trading using opposite Magnolia Oil and California Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magnolia Oil position performs unexpectedly, California Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in California Resources will offset losses from the drop in California Resources' long position.

The idea behind Magnolia Oil Gas and California Resources Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.